Whether termination charges, which BT are entitled to charge, could be introduced as a new scheme within its existing Intercommunication Agreement in line with the rules of EU competition law

Judgment was handed down by Lord Sumption in the case of British Telecommunications plc v Telefónica O2 Ltd and Others, [2014] UKSC 42 on 9th July 2014. The appeal was brought by British Telecommunications plc (BT) against the decision of the Court of Appeal to overrule the Competition Appeal Tribunal (CAT), therein restoring the decision of Ofcom from earlier proceedings.

The facts of the dispute are complex, but will be simplified for our purposes. In short the dispute stems from the termination charges that BT is entitled to charge mobile network operators, when calls from the latter's networks are put through to BT fixed lines associated with "08" numbers; see paras 2-3.

The conditions for this agreement are found in BT's Intercommunication Agreement that the mobile network operators are also party to. At question in this case were the termination charges for "080", "0845" and "0870" numbers under a revised scheme introduced by BT in 2009. These changes followed Clause 12.2 of the Interconnection Agreement, and accordingly BT notified network operators by way of Network Charge Change Notice 956. This change meant operators would be charged a variable rate, dependent on the amount the originating network charged the caller. The four mobile networks acting as respondents in this case rejected this new charge.

The issue was submitted to Ofcom under a statutory dispute resolution procedure. In February and August 2010 it decided that BT should not be allowed to proceed with the new scheme. It could only do so if the changes were "fair and reasonable", out of concern as to the potential effects for consumers and mobile tariffs. At the Competition Appeal Tribunal (CAT) this decision was overturned, only for the Court of Appeal to overrule the CAT and restore Ofcom's original decision.

The telecommunications sector, and therefore the matter at hand, is regulated by the Common Regulatory Framework of the EU. Important here are Directives 2002/21/EC (the "Framework Directive") and 2009/19/EC (the "Access Directive"), amended in 2009, passed in an attempt to liberalise the European market and pave the way for full competition from the monopoly culture of previous years.

These Directives were transposed into UK law by way of the Communications Act 2003, subject to regulation by Ofcom. Price control, with intervention from regulatory bodies, is important to such a market where there is inefficient competition. It cannot however be imposed by regulation against a mobile network or communications provider without significant market power. Regulators can nevertheless intervene where the emergence of a competivie market is liable to be hindered by a communications provider implementing prejudicial terms into their intercommunication agreements.

In a unanimous judgment, Lord Sumption found in BT's favour. He considered in depth the judgment of the Court of Appeal which found that BT had to justify the charges, addressing in turn each reason given by the Court as to why it overruled the CAT's decision.

Firstly, the Court of Appeal's decision that the CAT was wrong to treat BT as having a prima facie right to change its charges, was dismissed. It had no more than a right to do so, subject to Ofcom's determination were the counterparty to object. Ofcom's attempt at resolving this dispute, concerning a proposal to vary charges under an existing interconnection agreement, was determined to amount to an adjudicatory and regulatory function hybrid; see e.g. T-Mobile (UK) ltd v Office of Communications, [2008] CAT 12.

The contract must be considered as the necessary starting point, when considering whether the change is permissible. If this can be answered in the affirmative Ofcom should give effect to any variation, unless it would be inconsistent with its regulatory objectives.

BT is equally constrained when making changes, to the extent that they have to comply by the objectives of the regulatory environment in which it operates. Ofcom had to consider the question of whether BT surpassed this contractual discretion. Ofcom could not reject proposals purely because of potentially adverse consequences for consumers, such as additional charges incurred being indirectly passed on to them through the services they pay for.

Secondly, the Court of Appeal held that the CAT was wrong in attaching weight to their view that restraining BT's freedom to set charges would distort competion. Lord Sumption disagreed with this on the following grounds: Ofcom was not acting as a regulator in this intance but rather an adjudicator in a dispute; the CAT could attach weight to the value of the new scheme as a form of competition; and the CAT's finding on the anti-competitive effects of restricting price charges was a purely factual judgment. The latter point could not be brought to the Court of Appeal for it was not a "point of law".

Thirdly, Lord Sumption considered it unnecessary to have an in-depth discussion of the Court of Appeal's decision that the CAT was wrong to attach weight to the fact that BT was exempt from ex ante control of its prices on competition grounds because it was not a market leader in a relevant market. Competition is assumed in the telecommunications sector, except in those cases where a communications provider is identifiable as a having significant market power in a relevant market.

Appeal allowed. There was no justification for the Court of Appeal to set aside the CAT's careful analysis, when this lay within an area of its expertise. Counsel were invited to make written submission on the order, unless this could be agreed.

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